Alistair Darling, the Miliband dilemma and what the party must do next

The former chancellor on Osborne's failure, Scottish independence and why Labour needs David Miliband.

Did anyone emerge with greater credit from the smouldering ruins of the Brown bunker - the Götterdämmerung of the New Labour years - than Alistair Darling? He did more than simply survive the paranoia, feuding and duplicities of the last days of the Labour government; it was as if he was emboldened by the dysfunction. He wanted to be straight with the electorate about the seriousness of the financial crisis and he challenged his party to wise up to the need for a credible budget deficit programme. And people respected him for it.

Darling was one of only three ministers who held a cabinet post from the beginning of the New Labour governments in 1997 right through to the end in 2010 (the others were Gordon Brown and Jack Straw, neither of whom left office with his reputation enhanced), and he was often used by Tony Blair as a kind of human fire extinguisher to put out the departmental blazes that others more careless had started. For a long period in office, he was perceived as being little more than a grey-haired technocrat, competent, loyal, a soft Brownite. Yet he grew and, in his final role as chancellor - engagingly documented in his memoir, Back From the Brink - became finally much bolder.

He became his own man. In the end, just as the banks were deemed too big to fail, so Darling was too important to sack, which was what Brown would have wished. But that was then. Now, as he tells me, he is "enjoying the freedom" of his new role outside the shadow cabinet and as Labour's most powerful unionist voice in the conflict with Alex Salmond and the separatist Scottish National Party.

Poor core

On the morning we meet, the GDP figures for the final quarter of 2011 are just out, showing definitively that the economy stopped growing towards the end of 2010. "I think 2011 has proved to be worse than anybody expected," Darling says, a little breathless from rushing back to his Westminster office after giving a hurried interview to one of the news channels. "George Osborne used to criticise me regularly for my forecasts; well, I think he's had to revise down his on four occasions during 18 months as Chancellor of the Exchequer. Looking ahead, unless and until the eurozone sorts out its problems, I just don't see any remission. I see us at best bumping along the bottom, though it must now be a better-than-even chance of us going back into recession. The crisis has turned out to be worse than even I thought it would be."

He denounces the coalition for "taking too much money out of the economy too soon" and for its rhetoric of austerity, which undermined consumer confidence even before the cuts began - the "mendacious" comparisons to Greece and so on - and says that one of the preconditions for recovery in Europe "is that the EU collectively has to have a credible plan for growth". He continues: "You particularly need to resolve this problem where you have a rich core around Germany and you have a poor core around the Mediterranean countries. Those imbalances are just not sustainable. If you don't do that, you are consigning yourself to maybe two decades of stagnation in the southern part of Europe, and that would drag down northern Europe. I understand: I've spoken to enough German politicians to understand the problems they have in German politics, the fact that debt is a complete anathema. They're worried about inflation, although I don't actually think that's a big problem.

“They would do well to remember that what precipitated the rise of Hitler was deflation, high unemployment and hopelessness, and it's that hopelessness that is beginning to permeate the body politic in Germany. The last quarter of German growth was pretty disappointing. If you start to hit people's aspirations you end up with a pretty lethal combination."

At present, the EU has a plan that "is deeply and fundamentally flawed. The treaty they signed up to last December, which locks particularly southern Europe into perpetual deflation, is the sort of argument we had in the 1930s, and we're in danger of repeating ourselves again."

In conversation, Darling is energised and alert. He speaks in quick, sharp sentences, ranging widely, digressing and riffing, and then looping back to where he started - to the relentless bleakness of the economic outlook. "In America the middle class has been squeezed now for 30 years," he says, adding that he desperately hopes Barack Obama wins a second term of office. "It's . . . more recent in this country, but these are the people who started to desert us in 2005, left us big-style in 2010, and who are the classic floating voters. Which is why I think that one of the things Osborne needs to look at in the Budget is a tax break for these people. They're the people who, bluntly, have no realistic prospect of seeing a great increase in their income over the next few years . . ."

Or, more likely, any increase at all, I suggest. “Yes. This constituency is becoming increasingly vocal as well. They're also the constituency that is saying, in relation to welfare, 'Yes, we accept that we have to help people who are less fortunate but no, you can't carry on paying an awful lot of money out to people who are not working when we are working hard and we don't see we're getting any of the benefits.' It's a group that we didn't do enough about. They went to Thatcher in 1979."

Cash your credits

When I'd last had a private chat with Darling at his office, shortly before Christmas, we had talked about the Labour leadership and the forthcoming struggle over Scottish independence. "Things have moved on quite a bit since then," he says, by way of reference to events in Scotland. So, would he like to lead the campaign against Salmond and the SNP?

“I don't see it as a presidential thing - Salmond in one corner and someone else in the other. It's more likely to be a number of people playing
a prominent part. It will be stronger because of that. The discussions are well advanced now on setting up an all-party group. It will need a full-time organisation to do that. Interestingly, since I said what I said about Scotland [remaining in the Union], there have been quite a lot of people in Scotland who have said to me they would like to contribute to it [the campaign] financially."

Darling believes that Labour needs to be less apologetic about its achievements in office. In this, he concurs with David Miliband, whom he would like to return to front-line politics. "I would like him back on the front bench. For his knowledge, and his judgement. When I've seen him on various programmes talking about foreign affairs he talks with authority. I understand his reluctance. There's always comparisons. He is probably right to take a rain check. Certainly he would be a gain."

He reverts to the subject of Labour pessimism. "I don't agree with going round and saying: 'Everything we did was wrong,' because it's simply not true, and there was a bit of that at the [last] party conference, although Ed [Miliband] did stop people from doing that. I mean, we did actually do quite a lot of good things. Like every government we made mistakes, but there are very good things we can point to and which the present government is not seeking to undo. You can talk about tax credits for people with young children, for example. What the electorate are looking for is clarity. One of the things Ed will look to do is to sharpen up things over the course of this year."

Darling says he speaks regularly with the Labour leader and believes that, following the strategic repositioning of this year, the party has reached the correct position on the economy. ("Our position is, in terms of deficit reduction, similar to the one that I left - therefore I agree with it.")

Yet surely much more is required, beyond rhetorical denunciations of the iniquities of capitalism, which can sound like student sloganeering? "In politics if you make an assertion that something needs to change I think you have to have an example of how you do it," Darling says. "You don't have to have an entire worked-out policy and it is true that in politics if it is a good idea it will get nicked and if it isn't it will be hung round your neck. It's also true that there is no point adopting a policy now which in three years' time might look inappropriate. It's always a balance, but if I say something to you or a member of the public and they say "How?" or "Such as?", well, if you haven't got an answer then you rather lose it . . . In relation to growth . . . I think that's absolutely critical. Do we have to do more to present this in a sharper way? Of course we do. If you look at the poll evidence just now, clearly . . . we are by no means recovered. It's a process and that needs to be sharpened up and it needs to be speeded up. What it needs is for Ed Miliband for Ed Balls to set out quite clearly in stages where we are, where we're going to go, and that's something that I'm sure they will want to do.

“You know, rhetoric - you need to address issues with a passion, but people will say, 'OK, that's fine, but what are you going to do?' I'm not arguing that you should publish your manifesto three years before the event. [But] people want to know roughly where you're going with it. You remember in the run-up to the 1997 election we were quite careful about what we promised and when Tony [Blair] took over in 1994 we didn't have the entire thing spelt out. But I think . . . ending assisted places and giving national education to three- and four-year-olds was one of the early ones because that was an indicative promise . . . It sent a clear message that what we were talking about in crude terms was the many against the few. That's the sort of thing that we need to be doing now."

I ask if he is impressed by David Cameron and can account for why he continues to be more popular than his party. "He comes across well on the telly," Darling says. "He knows how to speak in a way that sounds appealing. He's a bit like Tony Blair in that respect. When he tries not to be posh, like when pretending that he [waits] in Ryanair queues - well, you know, come on! One of the tests is: would someone welcome you into their sitting room? At the weekend, for example, we had our constituency supper and Rachel Reeves [the shadow chief secretary to the Treasury] was speaking. I took her round the tables, and the amount of people who said to me: 'Oh, I've seen her on telly. She seems quite reasonable.' It's a very necessary thing in politics. You wonder how Attlee would have got on if there had been television rather than the radio in those days."

Brown obviously struggled to connect with voters in the way Darling describes. "When he became prime minister, he just wasn't at ease, which is a shame, because actually, like so many people who sometimes have a cold or stiff persona in public, in private they are much warmer. I think Cameron scores OK on that. But eventually people will say: 'Well, you are awfully nice but I am unemployed' or 'My income has dropped' or 'My children aren't in work'. People are tough at the end of the day . . . Where he is less good is on the detail . . . I don't think he had looked at the health reforms before [Andrew] Lansley set sail. That is going to get them at the next election, because that is when all the costs are going to come in. It's a complete dog's breakfast now."

Darling has been touted as an emergency, interim leader of Labour should Ed Miliband falter or his poll ratings collapse. He smiles. "What I like about things just now is that I can choose if I want to get into something or not. On Scotland, for instance, I will do as much as I possibly can. I cannot as a practicality lead a campaign when three or four days a week I am required to be here. I have to be here. You can't run a campaign nowadays from 400 miles away. If you're talking about a three-month campaign, that would be different. I might well say: 'Right, I'm going to spend all my time up there.' My constituents would understand that. I don't think they would understand my being away for two and a half years. That doesn't mean I can't participate: unless the Grim Reaper calls, I intend to see it out."